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The Hierarchical Trend Model for Property Valuation and Local Price Indices

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  • Marc K. Francke
  • Gerjan A. Vos

Abstract

This paper presents a hierarchical trend model (HTM) for selling prices of houses, addressing three main problems: the spatial and temporal dependence of selling prices and the dependency of price index changes on housing quality. In this model the general price trend, cluster-level price trends, and specific characteristics play a role. Every cluster, a combination of district and house type, has its own price development. The HTM is used for property valuation and for determining local price indices. Two applications are provided, one for the Breda region, and one for the Amsterdam region, lying respectively south and north in The Netherlands. For houses in these regions the accuracy of the valuation results are presented together with the price index results. Price indices based on the HTM are compared to a standard hedonic index and an index based on weighted median selling prices published by national brokerage organization. It is shown that, especially for small housing market segments the HTM produces price indices which are more accurate, detailed, and up-to-date.

Suggested Citation

  • Marc K. Francke & Gerjan A. Vos, 2004. "The Hierarchical Trend Model for Property Valuation and Local Price Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 28(2_3), pages 179-208, March.
    • Handle: RePEc:kap:jrefec:v:28:y:2004:i:2_3:p:179-208
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    Citations

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    Cited by:

    1. Chihiro Shimizu & W. Erwin Diewert & Kiyohiko G. Nishimura & Tsutomu Watanabe, 2015. "Estimating quality adjusted commercial property price indexes using Japanese REIT data," Journal of Property Research, Taylor & Francis Journals, vol. 32(3), pages 217-239, September.
    2. W. Erwin Diewert & Kiyohiko G. Nishimura & Chihiro Shimizu & Tsutomu Watanabe, 2020. "Measuring the Services of Durables and Owner Occupied Housing," Advances in Japanese Business and Economics, in: Property Price Index, chapter 0, pages 223-298, Springer.
    3. Diewert, Erwin & Shimizu, Chihiro, 2015. "Residential Property Price Indices For Tokyo," Macroeconomic Dynamics, Cambridge University Press, vol. 19(8), pages 1659-1714, December.
    4. Erwin Diewert & Chihiro Shimizu, 2017. "Alternative Approaches to Commercial Property Price Indexes for Tokyo," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(3), pages 492-519, September.
    5. Mick Silver, 2016. "How to Better Measure Hedonic Residential Property Price Indexes," IMF Working Papers 2016/213, International Monetary Fund.
    6. Dorinth van Dijk, 2019. "Local Constant-Quality Housing Market Liquidity Indices," DNB Working Papers 637, Netherlands Central Bank, Research Department.
    7. Xiaolong Liu, 2013. "Spatial and Temporal Dependence in House Price Prediction," The Journal of Real Estate Finance and Economics, Springer, vol. 47(2), pages 341-369, August.
    8. Diewert, W. Erwin & Nishimura , Kiyohiko & Shimizu, Chihiro & Watanabe, Tsutomu, 2014. "Residential Property Price Indexes for Japan: An Outline of the Japanese Official RPPI," Economics working papers erwin_diewert-2014-17, Vancouver School of Economics, revised 27 Mar 2014.
    9. Daikun Wang & Victor Jing Li, 2019. "Mass Appraisal Models of Real Estate in the 21st Century: A Systematic Literature Review," Sustainability, MDPI, vol. 11(24), pages 1-14, December.
    10. Marc Francke, 2010. "Repeat Sales Index for Thin Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 41(1), pages 24-52, July.
    11. W. Erwin Diewert & Chihiro Shimizu, 2022. "Residential Property Price Indexes: Spatial Coordinates Versus Neighborhood Dummy Variables," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 68(3), pages 770-796, September.
    12. Dorinth W. van Dijk & Marc K. Francke, 2018. "Internet Search Behavior, Liquidity and Prices in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 46(2), pages 368-403, June.
    13. Melser, Daniel, 2017. "Disaggregated property price appreciation: The mixed repeat sales model," Regional Science and Urban Economics, Elsevier, vol. 66(C), pages 108-118.
    14. Marc K. Francke & Alex Minne, 2017. "The Hierarchical Repeat Sales Model for Granular Commercial Real Estate and Residential Price Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 55(4), pages 511-532, November.
    15. Burnett-Isaacs,, Kate & Diewert, Erwin & Huang, Ning, 2017. "Alternative Approaches for Resale Housing Price Indexes," Microeconomics.ca working papers erwin_diewert-2017-6, Vancouver School of Economics, revised 08 May 2017.
    16. Zhu, Bing & van Dijk, Dorinth & Lizieri, Colin, 2024. "Price diffusion across international private commercial real estate markets," Journal of International Money and Finance, Elsevier, vol. 140(C).
    17. Daniel Melser & Robert J. Hill, 2019. "Residential Real Estate, Risk, Return and Diversification: Some Empirical Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 59(1), pages 111-146, July.
    18. Cupal Martin & Sedlačík Marek & Michálek Jaroslav, 2019. "The Assessment of a Building’s insurable Value using Multivariate Statistics: The Case of the Czech Republic," Real Estate Management and Valuation, Sciendo, vol. 27(3), pages 81-96, September.
    19. Sofie R. Waltl, 2016. "A hedonic house price index in continuous time," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 9(4), pages 648-670, October.
    20. Tom Kauko, 2009. "Classification of Residential Areas in the Three Largest Dutch Cities Using Multidimensional Data," Urban Studies, Urban Studies Journal Limited, vol. 46(8), pages 1639-1663, July.
    21. Bahar Öztürk & Dorinth van Dijk & Frank van Hoenselaar & Sander Burgers, 2018. "The relation between supply constraints and house price dynamics in the Netherlands," DNB Working Papers 601, Netherlands Central Bank, Research Department.
    22. Alicia N. Rambaldi & Cameron S. Fletcher, 2014. "Hedonic Imputed Property Price Indexes: The Effects of Econometric Modeling Choices," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(S2), pages 423-448, November.

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